Answer these 4 questions before incorporating in Canada

In my most recent World First post, I wrote about strategic areas to consider before a business prepares to expand internationally. These aspects, including market research, currency, partnerships, and utilizing resources available from the U.S. Department of Commerce, are applicable to any country a business decides to conduct business in.

What if you decide to do business in Canada? For a U.S.-based company, Canada presents fewer barriers to entry than it might elsewhere. The country is a neighbor to the United States, and has many advantages to offer to incoming entrepreneurs including a strong workforce and plenty of natural resources.

However, what entrepreneurs may not realize is that a business run in the United States cannot be run, or even incorporated, the exact same way in Canada. Let’s take a closer look at a few key areas to be aware of before getting started.

Will I incorporate my business at the federal or provincial level?

The good news about incorporating a business in Canada is that most, if not all, of the same entities available in the U.S. can also be established there, too. You can incorporate as a limited liability company (LLC), sole proprietorship, or corporation, with many entrepreneurs opting for the latter legal structure. However, if you want to incorporate your business in Canada, you must do so at a federal or provincial level.

Canada is filled with provinces, including Quebec, Alberta, and Saskatchewan. Each province comes with its own rules for how a business may operate within its borders. If you incorporate at a provincial level, you may only do business within that specified province. For those that choose to form a corporation at a federal level, however, they may conduct business within any province.

Incorporating at the federal level in Canada tends to be slightly more complicated and expensive, but it does allow you to conduct business nationwide. Incorporating provincially is a bit simpler, faster, and ideal for a business that wants to reach a specific province’s market. Ultimately, I cannot tell you which level would be best for your business. The decision varies depending on the type of business you have, its industry, and your long-term plans for the company.

Should the corporation be a subsidiary or branch?

Is my business a… What? Let’s unpack what this means. If you only want to conduct business in Canada with no other outside presence in other countries, you won’t need to worry about this section. However, if your Canadian business is an extension of a non-Canadian corporation (i.e. a corporation that started in the U.S.), you’ll need to determine if the business is a subsidiary or branch.

A subsidiary is a separate entity that limits liability to the subsidiary corporation. A branch is part of the parent corporation and its liability extends to said corporation. Any business that decides to be a subsidiary requires a Canadian incorporation. A branch does not have the same requirement, but it must be registered within its province and have the necessary permits and licenses needed to conduct business.

What does the corporation’s governance look like?

A Canadian corporation’s board of directors must be made up of a certain percentage of Canadian citizens. This is important for U.S. entrepreneurs trying to determine if they should incorporate at a federal or provincial level to keep in mind.

Federal corporations require at least 25% of Canadian citizens on their board of directors. The governance percentage varies on a provincial level. It is advised that you check in with each province to see what their board’s percentage is at the present time. One aspect that does not change, however, are the residency requirements. Members of the board must have physical addresses in Canada, alongside their respective corporation. For those business owners that do not already have one, they must also apply for a work visa.

Do I understand Canadian corporate law?

Not surprisingly, Canadian corporate law does vary a bit from U.S. corporate law. Corporations in Canada are held to different standards than they would be in America. There are also additional questions you may need help addressing, such as to whom corporate tax is paid.

If you do not have a thorough understanding of Canadian corporate law, or even have questions about the aforementioned aspects of incorporating in Canada, then it’s recommended that you consult a legal professional. Those that are particularly fluent with the ins and outs of how business is done in Canada can provide you with the knowledge necessary to get your business up and running.

Deborah Sweeney is the CEO of MyCorporation.com which provides online legal filing services for entrepreneurs and businesses, startup bundles that include corporation and LLC formation, registered agent services, DBAs, and trademark and copyright filing services. You can find MyCorporation on Twitter at @MyCorporation.